Blockchain’s impact on industries is increasing rapidly. The technology has the potential to disrupt all the industries of the modern world with its decentralization and mutual trust behaviour. Financial services were the early adopters of blockchain, but presently, every industry wants to try this technology. Supply-chain, healthcare, social media, entertainment, energy, gambling, gaming, robotics, analytics, marketing, real estate, retail & e-commerce, education, charity, legal, art and social media industries have their projects already proliferating in the market. The biggest advantage of a distributed ledger is maintaining an unchangeable shared ledger between two firms which gets automatically updated after every transaction.
Fiat currencies are those currencies that are issued by the government and regulated by a central bank like RBI. They are based on a centralized system which means they are operated by a single entity such as RBI or FED. These centralized systems, including your banks handle all your finances, do all the transfers, update accounts tasks and store all the information about ‘Your Money’.
Cryptocurrencies are different from Fiat currencies as it is only available in a digital format and it’s not controlled by any central authority. This is called decentralization. To understand cryptocurrency, we need to understand what a decentralized system or a decentralized ledger is.
Decentralized Ledger Explained
We will start with what is a Ledger?
A ledger is a written or computerized record of all the transactions a business has completed. Usually, it is maintained by one centralized body like banks or accounting departments of the companies. In a distributed ledger, there are multiple participants to handle these tasks. When these tasks are distributed to everyone in the network, it is called a distributed ledger. When these tasks are distributed only to some people in the network, it is called a decentralized ledger. Bitcoin‘s ledgers are a type of decentralized ledger.
Blockchain is a similar database that allows multiple users to record and make changes in it. Once the data is entered, it cannot be removed or changed as it only provides the feature of adding the data. The data can only be added to the blockchain once the majority of the participants provide the consensus to confirm the authenticity of the data with the process called ‘mining’. The data (a transaction in the case of Bitcoin’s blockchain) will be represented as a block in the network. The data gets broadcast on the blockchain network and it will validate the authenticity of the transaction using a consensus mechanism. A new block is generated once the block is deemed authentic by the network. After which it gets added to the most current state of the blockchain.
In the decentralized system, the information is not stored in one place. Every time a new change occurs or a new transaction happens, the node first verifies the transaction and then receives a copy of the new state of the ledger. A full node is basically a device (like a computer) and not a human who is doing the verification task manually. However, the entire blockchain data is publicly available on the internet and anyone can become a node by downloading the same. All nodes on a blockchain are connected to each other and they constantly exchange the latest blockchain data with each other so that all nodes stay up to date. They store, spread, and preserve the blockchain data. Hence, theoretically, a blockchain exists on nodes.
Now the next question comes where is cryptocurrency in this infrastructure. The currency used to transact on a blockchain is called a cryptocurrency. There is already enough buzz in the market, which has termed cryptocurrency as an asset, a commodity, digital gold, and even similar to real estate. Cryptocurrencies are digital currencies that are able to operate as a medium of exchange at a peer-to-peer level and enabling direct payments between individuals. Since the entire blockchain is developed using the principles of asymmetric cryptography, it was wise to call Bitcoin or any mode of exchange on a blockchain, a cryptocurrency. The idea behind the invention was to find a way to be independent of a central authority while producing a means of exchange that is secure, immutable, and verifiable.
They operate on decentralized platforms which means it is not controlled by any central authority. The decentralized nature of the blockchain makes cryptocurrencies theoretically immune to the old ways of government control and interference. Transactions made by this system can neither be reversed nor be faked. Cryptocurrencies are the way to solve the digital cash problem and helps to maintain integrity.
As we all know the first cryptocurrency was Bitcoin launched in 2009. Its inventor Satoshi Nakamoto is still unknown as of today. Bitcoin’s success has spawned a number of competing cryptocurrencies known as “altcoins”. Today, there are literally thousands of cryptocurrencies in existence with an aggregate market value of over $270 billion. Bitcoin currently represents more than 50% of the total market value.bitcoin